BVR Logo June 19, 2024 | Issue #261-3

BVWire is your go-to source for the latest in the business valuation profession. Highlights for this week include:

2024 Pepperdine report is now available

The 2024 edition of Pepperdine’s annual survey of expected rates of return with respect to private companies is now available (for free, thanks to continued financial support). The survey report says that the “findings indicate that the cost of capital for privately held businesses varies significantly by capital type, size, and risk assumed.”

Latest ranges: Bank loans have the lowest average expected returns (a median return of 6.8% to 9.0%, depending on loan size), while capital obtained from venture capital has the highest expected returns (ranging from a median of 23% for expansion financing to 51.5% for preseed money). The full report contains details on each type of funding and at various levels as well as a great deal more useful information.

Survey respondents include senior lenders, asset-based lenders, mezzanine funds, private equity groups, venture capital firms, angel investors, privately held businesses, investment bankers, business brokers, limited partners, and business appraisers.

To download the 144-page “2024 Private Capital Markets Report,” click here.

Hypothetical liquidation KO’d in shareholder dispute

In an Iowa case, minority owners of a family farm were to be bought out and the experts for both sides agreed that the net asset method was the appropriate way to value the operation. But the expert for the majority owners argued that the value should be reduced by tax consequences and transaction costs that would be incurred in a hypothetical liquidation.

No deal: The trial court disallowed the discount, and an appellate court agreed. The majority owners had provided no evidence of a contemplated sale of the farm. The trial court also pointed to the prevailing expert’s opinion that the company (a C corp) “has ample time to take strategic action to minimize or evade altogether any hypothetical tax consequences,” including “conversion to an S-Corporation five years prior to a sale or a 1031 Election to defer taxes.”

The case is Walker v. Daniels, 2024 Iowa App. LEXIS 396, and a case analysis and full court opinion are on the BVLaw platform.

ESOP experts anxious about upcoming DOL regs

A panel at the ASA ESOP Virtual Conference last week was clearly concerned over proposed rules the DOL is expected to issue on how to establish fair market value for shares of a business to be acquired by an ESOP, i.e., “adequate consideration.” This has been an issue of much contention and litigation over the years, so it is hoped that the regs will bring the clarity that valuers sorely need. But don’t expect any “bright-line” rules, the panel noted.

Worst fears: The DOL will not likely get into any specifics and will not issue anything that resembles a treatise or textbook on the matter. In response to a question from the audience as to whether the new regime at the DOL has a more favorable view of ESOPs than the old guard, the answer was “no,” one panel member observed. Also, there has been radio silence from the DOL, even after The ESOP Association sent the agency a detailed framework of what the proposed regs should include. In a worst-case scenario, the DOL could propose rules that are not consistent with accepted valuation theory and practice. However, recourse may be available if that happens, the panel pointed out.

In the meantime, the panel stressed the importance of making comments when the proposed regs are issued. There will be a two-to-three-month public comment period before the regs are finalized during which time stakeholders will have their chance to make their views known.

Other takeaways from the conference:

  • An ESOP feasibility study typically takes about six weeks, and the deal execution takes three to five months;
  • Valuation firms that do the initial ESOP feasibility study cannot also do the annual valuations;
  • The vast majority of ESOPs are now using warrants to help finance the transaction, and trustees are becoming much more sophisticated in these and other financial matters; and
  • Data visualization, i.e., graphs and charts, are much more effective for reports than simple data tables.

More detailed coverage will be in the August issue of Business Valuation Update.

New feature in Business Valuation Update spotlights research

To promote more of a connection between valuation practice and financial research, BVR’s monthly Business Valuation Update now includes a recap of research and scholarly papers that should be of interest to valuation experts. Each month, one paper will be featured with a summary and there will be a listing of other papers along with a capsule description and links. These papers are either recently published or have just come to our attention.

For the July issue, the following papers are included.

Featured paper: “Beyond Subjective Weights—Risk Aware Reporting of Valuation Results for a Privately Held Business” Mikhail Munenzon, CFA, ASA, CAIA, PRM, MIA (InteleK Business Valuation & Advisory)

Other papers of note include the following topics:

  • ERPs and risk-free rates (Pablo Fernandez survey);
  • Valuation of data assets;
  • Quantitative disclosures and risk; and
  • Impact of founder-family succession on firm value.

If you know of a paper that should be included in this new feature, please contact the editor at

Check out the speaker lineup for the ASA International Conference

There is a strong speaker lineup for this year’s ASA International Appraisers Conference to be held September 15-17 in Portland, Ore. (click here to see). The conference brings together appraisers of all disciplines, and the schedule-at-a-glance  shows 70 educational sessions across six discipline tracks. There are also some preconference courses and events, including a golf outing. Sessions include artificial intelligence, a cost of capital update, a panel with IRS staff, economic obsolescence, a mock trial, rethinking DLOCs and DLOMs, multidiscipline issues, and much more. For details and to register, click here.

Reminder: Take our survey on quality control

Quality control is the No. 1 concern for valuation firms, according to BVR’s Business Valuation Firm Benchmarking Guide. How do you handle quality control at your firm? Please take two minutes to answer a few questions for this month’s Practice Builder Survey. All responses are confidential. To take the survey, click here. Thank you!

CBV Connect this week, June 20-21

On-site attendance is sold out, and livestream registration has closed for CBV Connect 2024 June 20-21, hosted by the CBV Institute, Canada’s valuation professional organization (VPO) and standard-setter. But the CBV Institute tells BVWire that you will be able to register for the recordings of individual sessions after the live event. There are three tracks of sessions: Business Valuation, Litigation, and Deals. This is always an excellent event, and BVWire attended last year—you can see some of our coverage here and here.

Preview of the July issue of Business Valuation Update

Here’s what you’ll see:

  • “SCOTUS Decides Valuation of Corporate-Owned Life Insurance” (Roger Grabowski). In a unanimous decision, the United States Supreme Court sided with the 8th Circuit and ruled that the life insurance proceeds payable to a corporation that was to be used to redeem the deceased shareholder’s stock should be included in the deceased’s estate when calculating the value of the stock the deceased owned. The redemption liability did not offset the life insurance proceeds. This article is a summary of the decision and some observations.
  • “Two BV Trends That Have Alarmed BVR’s ‘Power Panel’” (BVR Editor). A panel of thought leaders commented on two issues they say have raised some very loud alarm bells. One issue involves the methodology and analysis for estimating a discount for lack of marketability (DLOM), and the other issue concerns professional standards.
  • “Retain Professional Judgment in Your Cost of Equity Estimates” (BVR Editor). Amid the barrage of emerging technology, artificial intelligence, and automated valuation models, there is a concern in the profession about the “black box” phenomenon of using these tools. Dr. Michael Crain (Florida Atlantic University), the author of the Cost of Capital Professional platform, talks about this with Ron Seigneur (Seigneur Gustafson LLP) during a demo of the platform.
  • “RESEARCH UPDATE: Monthly Recap of Research Papers” (BVR Editor). The featured paper is “Beyond Subjective Weights—Risk Aware Reporting of Valuation Results for a Privately Held Business” by Mikhail Munenzon (InteleK Business Valuation & Advisory). Other papers of interest to valuation experts cover topics including ERPs and risk-free rates, valuation of data assets, quantitative disclosures and risk, and the impact of founder-family succession on firm value.

The issue also includes:

  • A full section of “BV News and Trends/Global BV News and Trends”;
  • Regular features: “Ask the Experts” and “Tip of the Month”;
  • BV data spotlight: “DealStats MVIC/EBITDA Trends,” “FactSet/BVR Control Premium Study,” “Economic Outlook for the Month,” and the “Cost of Capital Center”; and
  • BVLaw Case Update: The latest court cases that involve business valuation issues with one case featured in a detailed analysis.

To stay current on business valuation, check out the July 2024 issue of Business Valuation Update.

BV movers . . .

People: Two professionals have been promoted to vice president at Mercer Capital: John T. (Tripp) Crews, III, ABV, who is a member of the Transaction Advisory services team, the Agribusiness Industry team, and the Family Business Advisory Services Group, and Daniel P. McLeod, CFA, a member of the firm’s Family Business Advisory Services Group and the Medical Device and Medical Technology industry team … At Prairie Capital Advisors Inc., two professionals have been promoted to vice president: Will Hobby, CPA, who advises middle-market companies on employee stock ownership plans (ESOPs), corporate valuation, financial opinions, and other investment banking advisory services; and Joseph Labetti, who is part of the ESOP advisory practice focusing on transaction structuring, capital raising, and ESOP formations.

Firms: Stout has acquired HealthCare Appraisers Inc., a provider of healthcare valuation and consulting services with about 70 professionals; the founder and managing partner, Daryl Johnson, was named as a managing director in Stout’s valuation advisory group; the deal marks Stout’s sixth acquisition since Audax Private Equity’s investment in November 2021 … Rochester, N.Y.-based The Bonadio Group has unified its investment banking, transaction advisory, and business valuation services under a new corporate finance business unit with the goal of expanding each service area and provide clients with seamless access to expertise across these teams. “As client needs for fair market value opinions, financial reporting and purchase price allocations continue to grow, it offers a unique opportunity for employees, both current and prospective, to pursue different areas of business and financial advisory,” said Michael Binz, managing director of the firm’s business valuation team … Providence, R.I.-based KLR has expanded its footprint and opened a new office in Bradenton, Fla.; the firm’s business valuation practice leader is Karen S. Rice, CPA, CVAOstrow Reisin Berk & Abrams Ltd. (ORBA), headquartered in Chicago, has opened its first office outside the Midwest in Salt Lake City, Utah; the firm offers valuation services in its litigation support services and transaction advisory practices.

Please send your professional and firm news to us at

CPE events

NEW DATE: Case Studies in the Context of Goodwill and Divorce Litigation, July 11, 10:00 a.m.-10:50 a.m. PT/1:00 p.m.-1:50 p.m. ET. Featuring: Josh Shilts (Shilts CPA, PLLC). CPE credits: 1.0.

This program is part of the new Compelling Case Studies: A BVR Series. These dynamic sessions delve into real-world applications and success stories within the field of business valuation, offering participants a deeper understanding of practical implementations and outcomes.

Recruiting BV Talent: Strategies for Success From Partners Winning the Game, July 16, 10:00 a.m.-11:40 a.m. PT/1:00 p.m.-2:40 p.m. ET. Featuring: Andrew Mackson (InteleK Business Valuation & Advisory), Mikhail Munenzon (InteleK Business Valuation & Advisory), and R. James Alerding (Alerding Consulting LLC). CPE credits: 2.0.

Presenters will share their hands-on “onshore and offshore” experiences of building their business through sourcing, including best practices for hiring and training talent in a “post-COVID, digitally enhanced world.”

We welcome your feedback and comments. Contact Andy Dzamba (Executive Editor) at:


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